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Share buyout by connected party.

Options for the daughter of a business owner to purchase the the entire shareholding of the owner.

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An area i've not dealt with for a very long time. A business owner wants to sell all of their shares to their daughter (who is already a minority shareholder). A fee will be agreed between the two. There are no other shareholders. Are there any matters to take into consideration here or is it simply a case of a resolution being written up to document and a share transfer form completed, any stamp duty paid etc? Any advice would be most welcome. Thanks

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Psycho
By Wilson Philips
11th Oct 2021 13:08

"Are there any matters to take into consideration here ...?"

That's a rather vague question. Of course there are. For starters, you'll need to consider what the market value of the shares is, regardless of what price may be agreed between the two.

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By David Ex
11th Oct 2021 13:23

Unless the company is only worth a trivial amount, the client ought to use a solicitor to document the sale.

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By johngroganjga
11th Oct 2021 14:15

The major other matter to take into consideration is the tax consequences for the father of the transaction you describe.

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Replying to johngroganjga:
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By Hugo Fair
11th Oct 2021 15:13

And although this may only involve father & daughter (who presumably are on good terms), there'd usually be some sort of agreement (probably drawn up by a solicitor) covering the possibility of claims dating back to the past (prior to sale of shares) and all sorts of other potential liabilities.

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Replying to johngroganjga:
boxfile
By spilly
12th Oct 2021 07:52

The OP doesn’t state that the business owner is the father, it could equally be the mother.

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By Elcott
11th Oct 2021 15:26

Thanks. Yes it's vague as all options are being explored currently. So, assuming a market value can be reliably estimated (it's an owner-managed coffee shop), then would the deemed market value over-ride the agreed sale price?

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Replying to Elcott:
Psycho
By Wilson Philips
11th Oct 2021 15:32

Have a look at TCGA 1992 s18 (and, in turn, s17) and let us know what you think.

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By Steve Kesby
11th Oct 2021 17:19

As I think John is alluding to, Transactions in Securities is a consideration here too. Presumably, the daughter, who is a connected person in relation to the father, expects to recoup her investment out of the existing or future profits of the company. So, the amount the father is receiving represents current/future profits that he would otherwise (if he weren't transferring the shares to the daughter for cash now) have to extract as a dividend.

There's no market value rule for income tax purposes though. You just reduce the CGT proceeds by the amount chargeable to income tax, and, but holdover relief will be available to the extent that the agreed consideration is below market value.

That being said, HMRC might give (or might once have given; things have changed) clearance for a Company Purchase of Own Shares, if dad is retiring. I don't imagine a TiS clearance being forthcoming.

Is a consideration necessary? If dad's happy for daughter to just take over and perhaps contribute to his maintenance out of the goodness of her heart there isn't really an issue.

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Replying to Steve Kesby:
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By Hugo Fair
11th Oct 2021 18:36

I've just been (correctly) reprimanded, on another post, for suggesting that a question without a stated objective is hard to answer ... but I must admit that my first thought on reading OP was exactly the same as your final paragraph.

Of course if the objective is to for parent to extract maximum cash that's another matter (and other possible drivers 'may well be available')!

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Replying to Steve Kesby:
Ivor Windybottom
By Ivor Windybottom
12th Oct 2021 09:16

Welcome back Steve.
Missed your wisdom, wit and advice.
Glad you're not dead!

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Replying to Ivor Windybottom:
By Steve Kesby
12th Oct 2021 12:12

Ivor Windybottom wrote:

Glad you're not dead!

Er... thank you!

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Replying to Steve Kesby:
Psycho
By Wilson Philips
12th Oct 2021 09:33

Whilst TiS cannot be ruled out, in absence of full facts, it seems to me that if the parent is retiring, passing on the company - by sale or by gift - to the next generation is a perfectly reasonable course of action and I think that ITA 2007 s684(1)(c) would present quite a high hurdle for HMRC in this case.

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Replying to Wilson Philips:
By Steve Kesby
12th Oct 2021 12:31

Yes, I doubt that they'd issue a counteraction notice, but I'm also dubious whether they'd actually give clearance. One doesn't necessarily follow from the other; I've certainly had a TiS clearance refused on a transaction where they'd have struggled showing it was motivated by tax avoidance. Clearance just makes things more comfortable though.

I'd see the CPoOS clearance as being the easier ask, assuming the daughter is an adult, and so not an associate for the purposes of the CPoOS legislation. Although the cash is then definitely coming directly from the company, of course.

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Replying to Steve Kesby:
Psycho
By Wilson Philips
12th Oct 2021 13:03

Agreed

I never bother with TiS clearances, unless as part of a larger reorganisation etc, as it is just inviting HMRC to say no. (I do typically ask for TiS clearance alongside a POOS clearance and to date it has never been refused, and I agree that if the company has the cash, or access to the cash, a POOS would be safer.)

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My photo
By Matrix
11th Oct 2021 17:47

They may wish to seek their own advice, you may be conflicted if you act for both but up to the daughter and Mother (or Father since I have been taught on here not to make assumptions).

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